Apple upbeat on services, accessories

CHINA RECOVERY:：CEO Tim Cook said that price adjustments, lower taxes and a trade-in and financing deals in China helped iPhone sales recover late last quarter

Reuters

Thu, May 02, 2019 - Page 10

Apple Inc said that sales in China were stabilizing and touted how increasing demand for services and accessories such as Apple Music and the Apple Watch helped offset a record drop in iPhone revenue.

Sales of iPhones, which account for more than half of all revenue, fell 17 percent in the fiscal second quarter from a year earlier and slightly missed analyst expectations.

After Apple slashed prices in China, iPhone sales picked up toward the end of the quarter and revenue rose from iPads, wearables and services.

Consumers might be putting off smartphone purchases longer than in the past, but they are deepening ties with the Cupertino, California-based company’s brand.

Shares, which have mostly recovered from an end-of-year sell-off, are rising toward a new high. They gained more than 5 percent in after-hours trading after Apple announced the results and plans for a new US$75 billion share buyback.

Apple said that it expects revenue of between US$52.5 billion and US$54.5 billion for the quarter ending next month, above analysts’ average estimate of US$51.93 billion, IBES data from Refinitiv showed.

In an interview, Apple CEO Tim Cook said that iPhone sales started to strengthen in the final few weeks of the fiscal second quarter, including in China.

“These, along with the continued success with wearables and so forth, give us some confidence that things are getting a bit better,” Cook told reporters in an interview.

Apple reported net earnings per share of US$2.46 for the quarter ending in March, down about 9.9 percent from a year earlier, compared with Wall Street’s average estimate of US$2.36. Actual net income declined 16.3 percent to US$11.56 billion.

Apple spent a record US$27 billion on share buybacks and dividends in the fiscal second quarter. Buybacks boost earnings per share by cutting the number of shares outstanding.

However, revenue from wearables and accessories sales of US$5.13 billion beat estimates of US$4.79 billion, the FactSet data showed.

Services revenue, which includes sales from iCloud, the App Store and other businesses, reached US$11.45 billion, compared with analyst estimates of US$11.32 billion, the FactSet showed.

Apple has wrestled with a slowdown in iPhone sales in key markets such as China and saw its first-ever year-on-year decline in iPhone revenue for the holiday shopping season.

The slowdown stemmed in part from the iPhone’s high cost and competition from rivals such as Huawei Technologies Co Ltd (華為), Xiaomi Corp (小米), Oppo Mobile Telecommunications Corp (歐珀移動) and Vivo Electronics Corp (維沃移動通信) — all of which sell cheaper smartphones with features similar to the iPhone.

However, Cook said that price adjustments in China, along with lower Chinese taxes on the iPhone and a trade-in and financing deals Apple offered, helped iPhone sales start to recover toward the end of the quarter.

Cook added that he is “optimistic” that the US and China will soon reach a trade deal.

“The trade relationship, versus the previous quarter, is better. The tone is better,” Cook told reporters. “The sum of all of this together, it helped us.”

Investors are looking to Apple’s services business to fuel growth as iPhone sales slow.

Last month, Apple revealed a new credit card offering and subscription services for news, TV and gaming, although only the news subscription is available to purchase.

Apple on Tuesday said that it has 390 million total subscribers to both its own and third-party services on its devices.